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How Can Filing For Bankruptcy Affect My Children?

Filing for bankruptcy is never a decision to be taken lightly. Along with considering the implications for your personal financial future, it’s also important to consider how filing for bankruptcy could affect your family. This can be an especially stressful experience for parents of younger children who are considering filing for bankruptcy. If you’re in this difficult situation, here are some things to take into account while considering filing for bankruptcy with children:

Will My Child Lose Their Toys and Other Possessions?

In all likelihood, your child’s toys and possessions, along with virtually all of your other household items, will not be valuable enough to be considered for liquidation during bankruptcy. Even though your child’s possessions are legally considered your property (assuming you purchased them), bankruptcy liquidation usually focuses on more valuable forms of property, such as automobiles, homes, or expensive furniture.

Does Bankruptcy Affect Child Support?

Child support payments that you’ve got saved in a bank account are exempt from bankruptcy in most states. In Pennsylvania, payments that you’ve received both before and after filing for bankruptcy are considered exempt.

If you’re divorced, are currently making child support payments to your ex-spouse, and file for bankruptcy, you’ll still be obligated to continue making payments. While many other types of debt are dischargeable in bankruptcy cases (meaning they can be eliminated), child support is considered nondischargeable in both Chapter 13 and Chapter 7 bankruptcy. Furthermore, child support debt is considered a “priority debt” – meaning creditors will seek to collect these debts first, even over other priority debts like income taxes.

Could I lose Custody If I File For Bankruptcy?

Generally speaking, filing for bankruptcy won’t directly affect your custody arrangement. If you file before a custody battle, then the bankruptcy could be taken into account if it points to a financial inability to provide for your child’s needs. But if you already have a custody arrangement in place, filing for bankruptcy won’t cancel it. However, your spouse could file a request to change the custody order. Changing a custody plan is more about your child’s quality of life, so if your bankruptcy filing hasn’t impaired your ability to provide for them, you likely have nothing to worry about.

Like other aspects of bankruptcy, the child custody implications can be complicated – so it’s recommended to speak with an experienced bankruptcy lawyer to better understand what to expect.

Are Child Bank Account and College Savings Exempt?

If you’ve got a bank account or college savings account opened in your child’s name, don’t worry. These accounts are exempt from bankruptcies. Creditors and the bankruptcy trustee do not have access to these accounts, assuming that you haven’t recently deposited cash into one of these accounts in an effort to hide your assets. Deposits made into these types of accounts less than 365 days before filing for bankruptcy may be seized and used to repay debts. But any deposits made more than 365 days before filing are safe.

If you’ve got a college-aged child or a high school child who will be applying to college soon, you may be worried about how your bankruptcy could affect their financial aid eligibility. Fortunately, your child will not be directly affected by your bankruptcy – they’ll still be able to take out student loans in their own name. However, you will not be allowed to take out parent loans on their behalf. If you’re unable to take out a PLUS loan, your child may be eligible for a larger loan in their name, so getting the financial aid your child needs for college should still be possible.